Markets in Asia and Europe mostly rose on Tuesday as hopes for the long-term global outlook held sway over worries about the fast-spreading Delta variant and expectations the Federal Reserve will soon begin withdrawing its vast financial support.
While vaccinations are being rolled out, infection rates continue to climb around the world, forcing some governments — particularly China and Australia — to impose fresh lockdowns and other containment measures.
That has led some observers to re-evaluate their growth outlooks.
However, at the same time, the US recovery appears to be on track, with the economy adding more than 1.8mn jobs in June and July and some of the world’s top companies reporting healthy earnings.
With inflation hitting multi-year highs, the Fed is coming under pressure to prevent prices from running away by tapering the ultra-loose monetary policies put in place at the start of the pandemic, with forecasts for an interest rate hike in late 2022.
On Monday, Atlanta Fed President Raphael Bostic said the bank’s goals of taming unemployment and long-term hot inflation were close.
“We are well on the road to substantial progress toward our goal,” he told reporters, calling July’s blockbuster jobs figures “definitely quite encouraging in that regard”.Analysts said the likelihood that the Fed will taper its vast bond-buying scheme was strong.
US inflation figures due Wednesday are being keenly awaited. “With a tapering announcement becoming more certain at an upcoming meeting, the focus is quickly shifting to the form of tapering to help inform on the likely timing of rates lift-off.
A relatively fast taper would thus open up the possibility of a rate hike in (the second half) of 2022.”
After a tepid lead from Wall Street, most of Asia enjoyed gains. Hong Kong led the pack, rising more than 1% as Chinese tech firms — which have been battered in recent weeks by Beijing’s crackdown — saw some much-needed buying interest, while Shanghai also enjoyed healthy gains.
Tokyo and Singapore were both in the green as they reopened after a three-day weekend, while Sydney, Wellington, Mumbai and Bangkok were also in the green. Seoul, Taipei, Manila and Jakarta were lower. London, Paris and Frankfurt edged higher in early business.
There remains a feeling that while Delta is a worry, it will only delay the recovery and that the outlook for markets is broadly positive.
“What we are experiencing right now is a pause in the recovery,” Loreen Gilbert, of WealthWise Financial, told Bloomberg TV. “Investors should expect some volatility in the markets as we sort out what the Fed is going to do, as we sort out the Delta variant.”
Oil rallied after suffering recent heavy losses fuelled by fears about the impact of Delta-enforced lockdowns on demand, and ahead of the monthly meeting of Opec and other key producers this week that will also be closely followed.
“The oil market is still in deficit but demand risks and a possible resurgence of Iranian crude is keeping prices heavy,” said Edward Moya. “A stronger dollar theme is starting to emerge given the recovery story in the US and that might be a short-term drag for crude prices.”
In Tokyo, the Nikkei 225 closed up 0.2% to 27,888.15 points; Hong Kong — Hang Seng Index ended up 1.2% to 26,605.62 points and Shanghai — Composite closed up 1.0% to 3,529.93 points yesterday.
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